Backwards budgeting: a way to increase savings

Last updated: 19 June 2022   By Justin Schamotta

Backwards budgeting uses the idea of scarcity to help people save more day to day.

Most budgets rely on careful pre-planning and future predictions in order to work out how much we will be spending, and therefore how much we have leftover to save.

Backwards budgeting works in a different way and it can provide a way to save more without the need for charts, lists and quite so much planning.

Briefly, it works by enforcing the idea of scarcity, basically once you've accounted for bills, you save pretty much everything else, removing the notion you have more money to spend than you do.

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Credit: Evgeny Atamanenko/

In this guide:

What is a backwards budget?

Most people find saving difficult, and when we receive pay check at the end of the month it's tempting to suddenly feel we have money to spend.

And that's because we do have money to spend. Yet, if we want to save some of it, it's actually easier to pretend that we don't.

The underlying concept of backwards budgeting then, is to introduce artificial scarcity to our bank balances, increasing our savings while removing the guilt of not spending more than we feel we should.

How it works

There are two approaches to backwards budgeting, but they amount to the same thing.

First, 'backwards' budgeting is about planning based on what we spent last month, using past spending as a guide tends to be more realistic than future predictions of spending, and is therefore easier to stick to.

Secondly, as mentioned above, backwards budgeting is about creating an idea of artificial scarcity, the less we feel we have, the less we'll overspend, and therefore the more we'll be able to save.
A backwards or reverse budget automates saving and spending: as soon as money goes in, a set amount for bills, rent or mortgage, and set savings goals go out. Leaving the minimum leftover for day-to-day expenses.

Here's an example of a backwards budget based on a £24k salary:

Income £1654
Savings £400
Rent £500
Bills £150
Food £200
Travel/Fuel £100
Subscriptions £20
Leftover in current account £284

It's important that the amount set aside for savings is moved to a different account, whether that's a savings account or a separate current account.

However, because backwards budgeting creates scarcity, i.e. we don't have much money available to spend, it's sensible to save using an instant access account so we can access the funds in an emergency.

Creating artificial scarcity is meant to be just that, artificial, it's not financially sensible to find we can't access our savings on short notice if the car breaks down and we need it to get to work.

Essentially then, it's a way of making sure money goes where it's needed most, removing the chance to overspend, and provides a budgeting system that doesn't constantly need to be monitored.

Life budgeting

Commonly, people may comment on the idea behind a backwards budget as being no different to the cost of living, especially when we have little leftover each month.

And, it's true, pay comes in, outgoings leave: for many, artificial scarcity is a bit of nonsense. Money is scarce as it is. But, we think, that's why it works.

It's a common-sense way of regulating finances, it's just that instead of money going out and being spent, cash is directed where it can do the most good, towards savings accounts, for example, or repaying debt, with the least amount of effort and pain.

Tips to make backwards budgeting work

Budgeting and saving aren't always easy or straightforward, especially during times like these when the cost of food, energy and fuel are all going up.

Here's some tips on how to make it work:

1. Set solid, but realistic, savings goals

The main principle of backwards budgeting is that saving comes first. However, in order to make it work it needs to be a realistic amount.

While we might want to save a certain amount because we're saving up for something in a set period of time, or we simply want to boost our savings quickly, don't forget to use backwards rather than future budgeting.

Future budgeting is when we decide how we want things to be, and then work towards that. For example, we might want to save £500 a month to afford a holiday in four months, and we tell ourselves we'll achieve this by giving up X, Y and Z.

While these kinds of budgets can be great in the short-term, they're hard to maintain and have a higher tendency to fail due to unexpected expenses, or simply feeling we've given up too much.

Backwards budgeting on the other hand makes use of past spending in order to work out how much we can realistically save. And that past spending will include unexpected expenses that cropped up, and therefore help us set a more realistic budget that's easier to stick to longer-term.

We've more on savings options and how to make the most of them.

2. Set fixed outgoings (as much as possible)

While savings are the headline with backwards budgeting, it's important to factor in essential expenses and ensure we're accounting for all of our necessary bills.

That means we need to factor in the cost of rent (or mortgage), bills including council tax, energy, water, broadband, mobile phones and any TV subscriptions. Food and travel for the month, including fuel costs. Some people may also have childcare costs too.

Where possible, set up direct debits to pay these outgoings in the week after your salary is paid. Direct debits can also help level out energy expenses, and most providers offer some kind of billing discount to pay this way.

Anyone who uses public transport frequently should also consider a monthly pass or ticket, and paying for that by direct debit too.

This way, at the start of each month, after you've been paid, all the bills will be paid and some will be transferred out to an instant access savings account too.

Inevitably, things may feel tight as you have a limited leftover in your current account, but this is the idea behind creating artificial scarcity: the less you think you have to spend, the less you'll spend.

3. Reconsider the essentials

This brings us onto tip 3: reconsider the essentials.

If we want to save we need to start spending less, and that means reconsidering what we think we need.

For example, we may be used to buying a cup of coffee on the way to work as a pick me up. Things like this that have become routine habits can be hard to kick, but £2.50 a day adds to up £50 over a month of working days.

It's also easy to start thinking we've worked all week and by Friday we deserve a night at the pub, or a meal out. These trips can prove expensive when we're trying to save, derailing a budget by £80 for four £20-night-outs.

Look through past spending over the last three months and really consider if it's essential or you could find a cheaper alternative or do without completely. Online subscriptions, magazine subscriptions, take-outs, are all things we can often cut back on or find cheaper alternatives.

People with expensive pay TV subscriptions for example, can usually make decent savings by opting for cheaper streaming alternatives such as NOW or Netflix.

Checking how much mobile data and minutes we've been using can also unearth ways to save. It's easy to end up with a mobile data plan for more than we need, and if we're only downloading half the data we're paying for it's an easy place to cut costs without giving anything up.

4. Remove guilt from overspending

One of the major benefits of a backwards budget and artificial scarcity is we feel we have less to spend than if we left all our money in our current account and only saved whatever was left at the end of the month.

It can be easy to feel we should spend the money we have if for example a friend or partner's birthday comes up and we want to treat them. Or even if we're invited on a night out and we feel guilty to say no, even when we know it will derail our savings goals.

Even for ourselves, we can feel almost guilty for not allowing ourselves to have treats and rewards for dealing with the stresses of life.

5. Find new self-care rewards

Which brings us onto our final tip: find new ways to treat yourself.

Self-care is important, especially during times of stress and the hardships faced by rising costs of living, increasing workloads or simply life's typical curve balls.

Learning to live with less and being frugal doesn't always feel attractive or fun either, and it can make us feel we deserve to be rewarded.

Habit comes into this again here too, because it's easy to treat ourselves with things that have become habits, like food or a night out, or even a buying new outfit to make ourselves feel better.

To keep spending low and increase savings it's important to find new ways to reward ourselves and build new self-care habits and routines.

This could be something as simple as a morning meditation, allowing ourselves more time to do the things we enjoy outdoors like exercise or gardening, or even to wind down at the end of the day with a hot bath.

Summary: how backwards budgeting can save more

After the financial crisis of 2008, many people struggled to save, and its likely people are finding themselves in the same position due to the energy crisis and rising costs of living we're seeing. But if we can save, even a bit, it's important to do at a time when expenses are so unpredictable.

Backwards budgeting can provide a guilt-free way to use artificial scarcity to let us set easy to manage budgets that remove the need for forward planning.

It's much kinder on the mind, removing both the guilt of not sticking to a budget limit you agreed in advance, as well as the guilt of not spending more than you feel you should. It's more tolerant of shifting spending habits and by using past spending can provide a more realistic budget that's easy to stick to.

To create a backwards budget:

  1. Set a savings amount based on past spending
  2. Ensure bills and essentials are paid in the week after your salary is paid
  3. Ensure savings can be accessed in an emergency
  4. Then, use the artificial scarcity to reduce overspending and reach savings goals

We've more on budgets in general, but if you've made use of backwards or reverse budgeting let us know in the comments if it worked for you, and if you have any other tips to share.


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